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MARKETING: Customer Loyalty
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altCustomer loyalty can mean two different things, depending on how you look at it. A customer can be loyal if the customer has a positive attitude towards a company or brand, and thereby prefers to buy this brand. This is considered a state of mind. A customer can also be loyal if the customer buys and continues to buy from the same company – regardless of preference or attitude. This is an actual behaviour. This article is about behavioural customer loyalty, which if you obtain it will make you earn more money. This requires a real commitment from the customer to the company – and vice versa.

Retention more important than acquisition
Several researches over the years have proven that acquiring a new customer is more expensive than retaining an existing customer. Traditionally most marketing activities have been focusing on acquisition – getting a customer to try your product. This is probably because the thrill of gaining a new customer is bigger than the accomplishment of a repeat sell to an existing customer. If you look at the figures though, the value of a repeat sell is often higher. It is becoming widely accepted that keeping customers is a vital task for companies. Companies are ultimately fighting to get the highest share of a customer’s wallet. Multiple researches show that the biggest driver of share of wallet is customer loyalty.

General guidelines about customer loyalty

Customers expect more than just being satisfied, and there will always be a competitor that can offer satisfaction. Loyalty is what makes your customer stick with you, and today, customers do not regard loyalty driven discounts or rewards as a nice little extra, it is becoming an expectation of the customer.

Know your customer
You have to really understand your customers in order to know what drives their loyalty. You must study and understand their behaviour, their desires and even where they are heading. Do not expect that everyone is loyal for the same reason.
“If you want a strong customer relationship, you have to know your customers better than they know themselves”
Bill Bernbach

If you want loyalty, you have to give loyalty. Demonstrate your commitment and let your customers know that you care about them and appreciate them. Building a lasting relationship requires communication – not talking, but communicating, which very much involves listening. Getting bad reviews from your customers can be a very important ingredient in improving your product and/or service.

First impressions last
Research shows that customers remember the first and last moment of an encounter more than the rest of it. A first impression is particularly important and this sets the expectation for the rest of the relationship. So, the person at the front desk should be friendly, the doorknobs should be polished, the sign in the window should be welcoming and memorable, the front page on your web site should be engaging and interesting and so forth. The devil is in the details.

Surprise – in a positive way
Be ahead of time. Surprise your customer by being a little faster than expected. This is extremely difficult in these times of instant reaction, given smartphones, twitter, etc. Meet the customer’s wishes before they are even expressed. Or, give the customer something they don’t expect, and do not tell them, just do it. Actions are much stronger than words. The size of the surprise often does not matter, it is more the thought you put into it.

Be consistent and credible
Furthermore, it is a prerequisite that the company is consistent and credible. If not, customers will start to question the company and their loyalty towards it.
Customer Relationship Management
Customer Relationship Management (CRM) is a business strategy to understand, anticipate, and respond to the needs of customers in order to grow the business. This is the marketing discipline in which customer loyalty is the reward of doing it right. CRM gives you a 360 degree view of your customer; it affects the customer’s experience with you and improves return on investment.

A common misunderstanding is that CRM is a piece of software. This is not the case; however having CRM software is a necessary enabler to handle the large amount of customer data. Based on the customer data you collect, you are able to segment your customers based on value. Typically, this will mean that you end up having three segments: Customers to be retained, customers to grow, customers to go up or out. Each segment must be treated differently, and within each segment there will be sub-segments, and each of these must again be treated differently. This will allow you to improve the satisfaction of each customer and to maximize the profitability of your individual customers.

The data driven insights that a CRM system will give you can form the basis for your loyalty programmes. Some of the more common loyalty programmes are:

- Rebate programmes: The rebate can be a gift card or certificate, which in turn will drive the customer back to your business or it can be in the form of cash back. This is well known from coffee shops, where the 10th cup of coffee is free.
- Discount programmes: Offers a specific discount off of the retail purchase price, either product specific or offered on the total basket of purchases. This is well known from big super market chains, where member cards give a certain percentage off the total price.
- Point programmes: Points are used as a currency to allow customers to keep track of their earnings. Typically, additional points are earned when the customers buys more. These are well known from airlines.
- VIP programmes: Offers “members-only” access to services, information, events etc. Well known from hotel chains that offer upgrades to members or special services like late check-out for free.

Customer Relationship Management in China
CRM is a growing market in China and more and more marketers in China work strategically with CRM and the creation of customer loyalty. However, there are a couple of things to be aware of.

altData quality in China is a matter of extremes and it is very difficult to get “clean” data. Furthermore, it seems like the changes of the Chinese people are more frequent and dynamic than anywhere else, and this is difficult to handle from a data perspective. Many companies use credit cards as a mean to track a customer’s interaction with the company. However, in China, credit card penetration is very low – in 2013 it is anticipated to be approximately 15%. In comparison, credit card penetration in the US is more than 90%.

China is not just a big country for a company to enter. It is actually like entering into a European style market with diverse and dispersed segments. There are huge differences in levels of wealth, customer maturity, infrastructure, culture, language, customs, growth etc. and you cannot supply one strategy to this diversified market of more than a billion people. The demands of segmentation is therefore another challenge for CRM in China.

China and customer loyalty
Some argue that Chinese consumers are less brand loyal than other consumers because China is fast changing in trends and tastes. Yet, some argue that Chinese consumers are just as brand loyal as any other consumers; just look at Apple, Belle International and GouBuLi. Both arguments probably hold some truths to it.

There is no doubt that the key to loyalty in China is customer insight – as anywhere else in the world. And yes; the speed of change is high in China. And yes; Chinese consumers do not have a long track record of brand loyalty, e.g. using the same toothpaste brand for generations like in the US (Colgate). Gaining and maintaining continually updated customer insights is an enormous task, but it is necessary to acquire customer loyalty and thereby a bigger share of wallets.

Companies need to think ahead and need to build long term market positions. Do not neglect a long term positioning strategy for short term gains. The temptation to sell into every available market in China is great, but the risk of eroding long term brand image is evident.

The differences between multinational companies and Chinese companies are becoming smaller and smaller, as multinational companies adapt to doing business in China and the Chinese learn more about the Western way of doing business. Combined with more mature and advanced Chinese consumers, the battle for customer loyalty is on, and everyone is competing against everyone.


By Heidi Skovhus
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